DLJ Mortgage Capital, Inc., Appellant,v.Thomas Kontogiannis, et al., Defendants, Chicago Title Insurance Company, Inc., et al., Respondents.BriefN.Y.November 13, 2013To Be Argued by: MICHAEL J. SCHWARZ New York County Clerk’s Index No. 104675/10 New York Supreme Court Appellate Division – First Department DLJ MORTGAGE CAPITAL, INC., Plaintiff-Respondent, – against – THOMAS KONTOGIANNIS, GEORGIA KONTOGIANNIS, LISA DIPINTO a/k/a LISA KONTOGIANNIS a/k/a LISA POLLATOS, ANNETTE APERGIS, CHLOE KONTOGIANNIS, ADAM DIPINTO, ELIAS APERGIS, JOHN T. MICHAEL, JONATHAN RUBIN, MICHAEL A. GALLAN, ESQ., TED DOUMAZIOS, ESQ., THOMAS F. CUSAK, III, ESQ., STEPHEN P. BROWN, ESQ., STEPHEN A. MARTINI, CARMINE CUOMO, COASTAL CAPITAL CORPORATION d/b/a THE MORTGAGE SHOP d/b/a CLEARLIGHT MORTGAGE, EDGEWATER DEVELOPMENT, INC., GROUP KAPPA CORP., LORING ESTATES LLC, PARKVIEW FINANCIAL CENTER, INC. d/b/a PARKVIEW FINANCIAL, INC. d/b/a PARKVIEW CENTER, INC., CLEAR VIEW ABSTRACT LLC, TRIUMPH ABSTRACT, INC., BOND & WALSH CONSTRUCTION COMPANY, INTERAMERICAN MORTGAGE CORP., HALIFAX GROUP LLC, PLAZA REAL ESTATE HOLDINGS, INC. and WASHINGTON TITLE INSURANCE COMPANY, INC., Defendants, CHICAGO TITLE INSURANCE COMPANY, INC. and UNITED GENERAL TITLE INSURANCE COMPANY, INC., Defendants-Appellants, DOE’s 1 through 100 inclusive, Defendants. BRIEF FOR DEFENDANT-APPELLANT UNITED GENERAL TITLE INSURANCE COMPANY, INC. DELBELLO DONNELLAN WEINGARTEN WISE & WIEDERKEHR, LLP Attorneys for Defendant-Appellant United General Title Insurance Company, Inc. One North Lexington Avenue White Plains, New York 10601 (914) 681-0200 mjs@ddw-law.com Printed on Recycled Paper TABLE OF CONTENTS TABLE OF AUTHORITIES ....................................................... .iii PRELIMINARY STATEMENT .................................................... 1 QUESTIONS PRESENTED ......................................................... 6 STATEMENT OF FACTS ........................................................... 8 ARGUMENT ........................................................................ l6 Standard of Review .......................................................... 16 I. The Amended Complaint Fails to Establish a Basis for Conspiracy Liability Against UGT .................................. 17 II. UGT is Not Liable for the Purported Acts of Clear View, Which Were Not Committed in Clear View's Capacity as a Limited Agent for UGT .............................. 22 a. Assuming that Clear View Committed the Acts Complained of in the Amended Complaint, Clear View Was Not Acting With the Scope of Its Actual Authority ................................................... 22 b. The Amended Complaint Fails to Plead a Basis For Holding UGT Accountable Under a Theory of Apparent Authority ........................................... 27 c. UGT is Not Accountable For the Acts of Clear View and/or Triumph in Their Purported Capacity as Limited Agents for Other Parties ........................................ 30 III. The Lower Court Erred in Holding That The Amended Complaint States a Viable Claim of Fraud Against UGT ..................................................................... 32 a. DU Fails to Plead With Particularity Any Fraudulent Statements/Omissions By Clear View to DU ................ 34 1 b. DU Was Not Entitled to Rely On The Alleged Commitments For Title Insurance ............................. 38 c. The Commitments Refute Any Claim By DU That It Reasonably Relied Upon The Commitments .............. 43 d. DLJ Decision To Ignore Readily Apparent "Red Flags" Bars It From Seeking Recovery Against UGT ...... 44 CONCLUSION ...................................................................... 48 11 TABLE OF AUTHORITIES State Cases Page 150 Beach 1201h Street, Inc., 39 A.D.3d 723 (2d Dept. 2007) ............................................. 28 Abacus Federal Savings Bank v. Lim, 75 A.D.3d 472 (1st Dept. 2010) ............................................. 18 Abrahami v. UPC Constr. Co., 176 A.D.2d 180 (1st Dept. 1991) ....................................... 18, 19 Adler v. Helman, 169 A.D.2d 925 (3d Dept. 1991) ........................................... 29 B.S.L. One Owners Corp. v. Key Inti. Mfg., 225 A.D.2d 643 (2d Dept. 1996) ............................................ 1 Biondi v. Beekman Hill House Apt. Corp., 257 A.D.2d 76 (1st Dept. 1999) ............................................... 16 Center v. Hampton Affiliates, Inc., 66 N.Y.2d 782 (1985) ....................................................... 24 Citibank, N A. v. Chicago Title Insurance Company, 214 A.D.2d 212 (1st Dept. 1995) ..................................... .40, 42 Carris v. White, 29 A.D.2d 470 (4th Dept. 1968) ....................................... 19, 20 Credit Alliance Corporation v. Sheridan Theater Co., 241 N.Y. 216 (1925) ......................................................... 25 Davidowitz v. Dixie Associates, 59 A.D.2d 659 (1st Dept. 1977) ............................................. 19 Delvin v. 645 First Ave. Manhattan Co., 229 A.D.2d 343 (1st Dept. 1996) ........................................... 19 Eastman Kodak Co. v. Roopak Enterprises, Ltd., 202 A.D.2d 220 (1st Dept. 1994) ...................................... 33, 36 iii Eng v. Sichenzi, 2005 WL 6227846 (Sup. Ct. Putnam County Dec. 6, 2005) ................................................................. 31 Fidelity Nat. Title Ins. Co. of New York v. Consumer Home Mortg., Inc., 272 A.D.2d 512 (2d Dept. 2000) .......................................... 37 First Nationwide Bank v. 965 Amsterdam, Inc., 212 A.D.2d 469 (1st Dept. 1995) ........................................... 19 Fort Ann Cent. SchoolDist v. Hogan, 206 A.D.2d 723 (3d Dept. 1994) ........................................... 32 Hallockv. State of New York 64 N.Y.2d 224 (1984) ....................................................... 27 Harriss v. Tams, 258 N.Y. 229 (1932) ......................................................... 30 J ebran v. LaSalle Bus. Credit, LLC, 33 A.D.3d 424 (1st Dept. 2006) ............................................. 21 Kliebert v. KcKoan, 228 A.D.2d 232 (1st Dept. 1996) ............................................ 16 Leonard v. Gateway II, LLC, 68 A.D.3d 408 (1st Dept. 2009) ............................................. 38 Loudin v. MohawkAirlines, Inc., 24 A.D.2d 447 (1st Dept. 1965) ............................................. 16 Mandor v. Lawyers Title Ins. Corp., 28 N.Y.2d 739 (1971) ....................................................... 39 M cGrarry v. Miller, 158 A.D.2d 327 (1st Dept. 1990) ...................................... 26, 27 Megaris Furs, Inc. v. Gimbel Bros., Inc., 172 A.D.2d 209 (1st Dept.1991) ............................................ 32 Morgold, Inc. v. ACA Galleries, Inc., IV 283 A.D.2d 407 (2d Dept. 2001) ........................................... 28 New York Fruit Auction Corp., 81 A.D. 159 (1st Dept. 1981) .......................................... .33, 36 N. X v. Cabrini Medical Center, 280 A.D.2d 34 (1st Dept. 2001) ............................................ 28 Otsego Mut. Fire Ins. Co. v. Darby, 79 Misc.2d 80, 85 (Sup. Ct. Fulton County 1974) ....................... 25 Peach Parking Corp. v. 346 W, 40th St., LLC, 42 A.D.3d 82 (1st Dept. 2007) .............................................. 32 Pfenning v. Motto, 220 N.Y.S.2d 64 (Sup. Ct. Suffolk County 1961) ....................... 20 Ramos v. Ramirez, 31 A.D.3d 294 (1st Dept. 2006) ............................................ 32 Routsis v. Swanson, 26 A.D.2d 67 (1st Dept. 1966) .............................................. 21 Sergeants Benev. Ass 'n Annuity Fund v. Renclc, 19 A.D.3d 107 (1st Dept. 2005) ............................................. 33 Supreme Speciality Mfg. Co. v. DeMuth, 220 A.D. 812 (1st Dept. 1927) .............................................. 20 Stuart Silver Assoc., Inc. v. Baco Dev. Corp., 245 A.D.2d 96 (1st Dept. 1997) ............................................. 46 Urban Holding Corp. v. Haberman, 162 A.D.2d 230 (1st Dept. 1990) ........................................... 16 UST Private Equity Investors, Inc. v. Salomon Smith Barney, 228 A.D.2d 87 (1st Dept. 2001) ........................................ 46, 47 Valassis Commun., Inc. v. Weimer, 304 A.D.2d 448 (1st Dept. 2003) ........................................... 38 v Waggoner v. Caruso, 68 A.D.3d 1 (1st Dept. 2009) ............................................... .32 Yuko Ito v. Suzuki, 57 A.D.3d 205 (1st Dept. 2008) ............................................. 21 Zev Cohen, LLC v. Fidelity National Title Insurance Co., 15 Misc.3d 798 (Sup. Ct. Kings Cty. 2007) .......................... .41, 42 Federal Cases Chrysler Capital Corp. v. Century Power Corp., 778 F.Supp. 1260 (S.D.N.Y. 1991) ......................................... 18 World Wrestling Federation Entertainment v. Bozell, 142 F.Supp.2d 514 (S.D.N.Y. 2001) ........................................ 18 STATUTES CPLR 3211 (a)(l) ............................................................... passim CPLR 3211 (a) (7) .............................................................. passim CPLR 3016 (b) .................................................................. passim SECONDARY STATUTES 2A N.Y. Jur. 2d Agency§ 307 .................................................... 25 20 N.Y. Jur. 2d, Conspiracy-Civil Aspects§ 19 ................................... 19 20 N.Y. Jur 2d, Conspiracy-Civil Aspects§ 10 ................................. 20 Joyce D. Palomar, Title Insurance Law§ 5:29 (West 2005) .............. .39, 40 Pedowitz, Real Estate Titles,§ 2.51 (West 3d ed.) ............................. .40 Vl PRELIMINARY STATEMENT Defendant-Appellant United General Title Insurance Company ("UGT"), through its attorneys, DelBello Donnellan Weingarten Wise & Wiederkehr, LLP, respectfully submits this Brief in support of its appeal from the Order of the Honorable Charles E. Ramos, Justice of the Supreme Court, New York County (the "Order"), which denied the motion made by UGT to dismiss the Amended Complaint (the "Amended Complaint") of Plaintiff-Respondent DLJ Mortgage Capital, Inc. ("DLJ" or "Respondent"), pursuant to CPLR 32ll(a)(l), CPLR 321l{a)(7), and CPLR 3016(b)! The motion was denied by short form Order without a written decision. The underlying action was commenced to recover damages allegedly sustained by DLJ in connection with its acquisition of approximately $50 million in mortgages on the secondary market from Coastal Capital Corp. 1 All references made to the Amended Complaint apply equally to DLJ's third amended complaint, which was served and filed after UGT made its motion to dismiss, and filed its notice of appeal. The third amended complaint contains identical allegations to the Amended Complaint to which UGT's motion was directed, and asserts an identical cause of action against UGT. While the third amended complaint adds new defendants and new claims against those defendants, those new claims and allegations have absolutely no bearing on the claim asserted against UGT, which remains unchanged. Based upon the single motion rule, UGT could not move to dismiss the claim asserted against it the third amended complaint. B.S.L. One Owners Corp. v Key Inti. Mfg., 225 A.D.2d 643, 644 (2d Dept. 1996). UGT submits that any ruling on this appeal regarding the sufficiency of the Amended Complaint should apply equally to the third amended complaint, which is included in the Record for the Court's reference. 1 d/b/a The Mortgage Shop d/b/a Clearlight Mortgage ("Coastal Capital") and other companies allegedly owned and/or controlled by defendant Thomas Kontogiannis ("Kontogiannis"), (R. at 365, 838),2 and after DLJ determined that the paper it had acquired from Coastal Capital was not what had been represented by Coastal Capital. (R. at 366, 839). DLJ' s claim against UGT is not based upon actual policies of title insurance issued by UGT. DLJ acknowledges that no policies have been issued by UGT, no premiums were paid for title insurance, and that there are no binding policies of title insurance relative to the mortgages in question. (R. at 21 ). As DLJ stated: "No insurance policy was ever delivered to DLJ. No premiums were ever delivered to the title insurance company. And, frankly, Your Honor, from all the documents I have seen, no title insurance policy was ordered, much less issued." (R. at 21). (See also, R. at 499, 1000). Recognizing that there are no policies of title insurance, DLJ seeks to hold UGT accountable for its own questionable lending practices in 2 References in this Brief to the Joint Record on Appeal are noted as "R. at_". This appeal is being perfected jointly with the appeal taken by Defendant-Appellant Chicago Title Insurance Company ("Chicago Title"). Chicago Title's appeal brief raises similar claims as to those being made herein. UGT adopts and incorporates by reference all arguments made by Chicago Title in its appeal brief, and offers the same in support of its (UGT's) appeal from the Order. 2 overlooking glaring defects in the mortgage loan origination files purchased from Coastal Capital. DLJ claims that UGT is liable for the entire "massive" mortgage fraud scheme of Kontogiannis and his cohorts collectively referred to in the Amended Complaint as the "Conspiracy Defendants," even though UGT is not alleged to: (i) be part of the alleged criminal conspiracy to defraud DLJ; (ii) have knowledge of the alleged conspiracy; (iii) have acted in furtherance of the purported conspiracy; or (iv) have benefited from the alleged criminal conspiracy in any way. Based upon settled authority, DLJ's conspiracy based claim against UGT is inadequately plead, and is insufficient to UGT' s liability for the alleged conspiracy to defraud DLJ into purchasing "bogus" mortgages from Kontogiannis or his entities. Likewise, the Amended Complaint fails to set forth sufficient facts to hold UGT accountable for any purported acts or omissions of Clear View Abstract, Inc. ("Clear View") as an alleged limited policy issuing agent of UGT. Indeed, the Amended Complaint fails to identify, with the degree of particularity required by CPLR 3016(b), any representations of fact made by Clear View to DLJ, or any omissions of fact by Clear View to DLJ. The pleading is wholly inadequate on its face, and should have been dismissed. 3 DLJ claims in conclusory fashion that it relied upon alleged commitments for title insurance allegedly issued by Clear View when DLJ decided to purchase thirteen ( 13) mortgages from Coastal Capital on the secondary market. Based upon the fact that the collateral files only contained unmarked commitments, DLJ and/or its agents assumed that the loans were insured by title insurance. However, DLJ's claim of reliance upon the commitments is belied by DLJ' s own pleading, DLJ alleges that it became obligated to purchase the mortgages from Coastal Capital before it even received a copy of the loan files for the Subject Mortgages, including copies of any commitment. DLJ' s claim of reliance is inherently incredible, and should not be accepted as true. Even if the Court accepts the truth of DLJ' s allegation that reviewed and relied on the commitments for title insurance in purchasing mortgages from Coastal Capital, such reliance was fundamentally unreasonable, unwarranted, and improper. Commitment for title insurance are pre-closing documents which do not purport to be policies of title insurance policy, and are not issued for the benefit of any party to the alleged mortgage transaction. Furthermore, the commitments in question specifically state on their face that they are not to be relied upon by any party. Moreover, the 4 alleged commitments indicate that they were issued after the closings for the mortgages DLJ alleges they insured, a red-flag clearly giving rise to a duty to inquire further. DLJ made no such inquiry, and it acknowledges that it failed to perform even a simple search of the public records to determine whether the mortgages in question had ever been recorded prior to its acquisition of the same. DLJ, a substantial and sophisticated player in the purchasing, pooling and sale of mortgages on the secondary market, clearly chose to ignore these glaring irregularities , and failed to engage in any meaningful due diligence. Accordingly, DLJ is barred from holding UGT, an innocent third party, not involved in any of the subject transactions, liable for DLJ' s lack of diligence. Finally, if DLJ's allegations are taken as true, it is clear that Clear View completely abandoned the scope of its limited to act on UGT's behalf by actively participating in an alleged conspiracy designed to sell "bogus" mortgages to DLJ on the secondary market, solely for the benefit of an alleged co-conspirator, Kontogiannis, and to help Kontogiannis and his entities reap profits from the sale of those instruments on the secondary market. Clear View's alleged creation of false reports of title could not have been undertaken in its capacity as a limited agent of UGT, and it 5 clearly was not generating those reports on behalf of UGT (assuming they were generated by Clear View in the first instance). Dismissal of DLJ's claim against UGT is therefore mandated. The lower court erred in denying UGT' s motion to dismiss the Amended Complaint. It is respectfully submitted that this Court should reverse the decision of the lower court, grant UGT' s motion to dismiss the Amended Complaint, and award such other and further relief as the Court deems just and proper. QUESTIONS PRESENTED 1. Whether the lower court improperly sustained Plaintiffs conspiracy based claim against UGT, which seeks to hold UGT liable for an alleged criminal conspiracy to sell fake mortgages to DLJ on the secondary market, since the Amended Complaint fails to allege, inter ali, that UGT: (i) agreed to participate in the conspiracy; (2) committed any overt acts in furtherance of the conspiracy; or, (3) had knowledge of the . conspiracy. 6 Answer: This question should be answered in the affirmative. The lower court erred holding that DLJ satisfied its burden of pleading a conspiracy based claim against UGT. 2. Whether the lower court erroneously denied UGT' s motion to dismiss pursuant to CPLR 3211 (a) and CPLR 30 16(b) where the Amended Complaint fails to specify any alleged fraudulent statements or omissions made by Clear View to DLJ? Answer: This question should be answered in the affirmative. The Amended Complaint fails to plead a fraud claim against UGT. 3. Whether the lower court erroneously held that DLJ was entitled to rely upon fake commitments for title insurance which were allegedly issued by Clear View? Answer: This question should be answered in the affirmative. As a matter of law, DLJ was not entitled to rely upon the alleged commitments. Furthermore, the alleged the commitments on their fees demonstrate that they were not to be relied upon, which belies DLJ's claim of reliance. 7 4. Whether the lower court erred in denying UGT' s motion where the facts alleged demonstrate that Clear View was not acting within the scope of its agency, and had abandoned the scope of its limited agency? ANSWER: This question should be answered in the affirmative. The facts alleged demonstrate that Clear View was not acting within the scope of its limited authority, and had otherwise abandoned its agency. 5. Whether DLJ can pursue its fraud claim against UGT where DLJ overlooked several "red flags" and otherwise failed to exercise any meaningful diligence when acquiring the subject mortgages? ANSWER: This question should be answered in the negative. DLJ, a sophisticated lender, chose to ignore glaring defects in the loan collateral files it purchased from Costal Capital, and failed to engage in simple due diligence concerning the recording of its mortgages and the existence of title insurance. DLJ should be barred from pursuing its claims against UGT. STATEMENT OF FACTS Background - The Amended Complaint Allegations DLJ claims to be a victim of a "massive" mortgage fraud scheme 8 masterminded by Kontogiannis, and carried out by entities and individuals controlled by him. (R. at 365, 838). It is alleged that Kontogiannis, or those controlled by him, allegedly created 95 fraudulent loans, and sold them to DLJ on the secondary market between 2004 and 2006. (SeeR. at 365, 451, 838, 942-43). It is alleged that Kontogiannis, or entities/individuals controlled by him, implemented the scheme by, inter alia: (i) creating fraudulent loan applications with "contrived data" and "inflated financial information for the straw buyers", and false closing documents; (ii) creating "fraudulent appraisals" for the properties in question; and (iii) requesting the issuance of "fraudulent" and/or "phony" title insurance documentation for the fake mortgages. (SeeR. at 366, 442, 448-49, 839, 933-34, 939-41).3 It is alleged that after the "loans" closed, Kontogiannis, or his agents, would arrange to sell the fake mortgages on the secondary Market to federally charted banks or to other financial institutions, like DLJ, so that Kontogiannis or entities controlled by him would "make a profit." (SeeR. at 444, 936). 3 None of the alleged title commitments identified DLJ as a proposed insured , but instead, named Coastal Capital as a proposed insured, (see R. at 651, 681, 704), an alleged co-conspirator and knowing participant in the alleged scheme. (See R. at 404, 460-61, 879, 951-52). 9 It is alleged that DLJ purchased the mortgages from Coastal Capital pursuant to the terms of a loan purchase agreement. (See R. at 449, 941 ). Prior to purchasing a mortgage a Coastal Capital employee would advise DLJ of the characteristics of the loan, and DLJ would quote a price for the loan without any review of the collateral file. (See R. at 450, 941 ). Once the offer to purchase a loan was accepted by Coastal Capital, DLJ would be obligated to purchase the loan, subject to DLJ's right to review and inspect the fake loan files which had allegedly been manufactured by Kontogiannis and/or others under his control. (SeeR. at 450, 941). After DLJ accepted Coastal Capital's offer to sell a loan, DLJ's fulfillment center, known as "Ocwen", would obtain a copy of the loan collateral file from Coastal Capital, or another Kontogiannis controlled entity, which would contain inter alia a bogus mortgage, note and an unmarked commitment for title insurance. (See R. at 450, 941 ). Those documents were then reviewed by Ocwen, and again by DLJ's collateral custodian, Bank of America, N.A., successor by merger to LaSalle Bank, N.A. ("BOA"), who would merely review the file on its face and represent to DLJ that the documents in the file "were complete and appeared regular on their face." (SeeR. at 450, 942.). After receiving a "trust receipt" from 10 BOA, and after BOA represented that the collateral files were "regular on their face", DLJ would wire funds to Coastal Capital to complete the purchase. (SeeR. at 450-51, 942). The Amended Complaint does not plead any pre-purchase communications or interactions between DLJ and UGT or Clear View. (See generally, R. at 358-520, R. at 825-1035). Of the 95 loans files purchased from Coastal Capital, thirteen (13) of the alleged loan collateral files allegedly contained unmarked UGT commitments for title insurance (the "Commitments"), which were purportedly issued by Clear View. (SeeR. at 500, 1001). DLJ concedes that none of the collateral files contained mortgage title insurance policies issued by UGT, that no premiums were paid, and that no policies were ordered from or issued by UGT. (SeeR. at 21). Furthermore, DLJ's pleading does not identify any specific misrepresentations of fact or omission made by either UGT or Clear View to DLJ prior to DLJ's acquisition of the Subject Mortgages. (See generally, R. at 358-520, R. at 825-1035). Instead, all purported pre-purchase communications are alleged to have been between DLJ, Ocwen, BOA, and Coastal Capital (or other Kontogiannis representatives). (SeeR. at 450-51, 941-42). 11 The Commitments The collateral files acquired from Coastal Capital contained unmarked commitments for title insurance which, indicated on their face that they were not policies of title insurance, but merely evidence of a commitment to issue a policy of title insurance if certain conditions are met. (See R. at 650, 680, 703).4 The alleged Commitments, on their face, further indicate that they are not to be relied upon by a prospective insured, see id., but are only intended for use by attorneys. See id. Moreover, the Commitments state that they are "null and void" if the policy premium is not paid (DLJ concedes that no premium was paid, see R. at 21 ), or if the proposed insured (namely, Coastal Capital), makes any untrue statements of fact or fails to disclose any material facts to UGT. (See R. at 650, 680, 703). 5 Finally, the Commitments state that if the "proposed insured acquired or acquires, any interest or lien to be insured hereunder prior to the delivery hereof, the Company assumes no liability hereunder except under the policy when issued." (See id.) (emphasis added). The documents, which are 4 DLJ acknowledges that a commitment for title insurance is "prepared weeks to months before a closing .... " (See R. at 739). 5 Which Coastal Capital clearly did, as alleged in the Amended Complaint. See R. at 4 72, 971. 12 referenced in DLJ' s Amended Complaint, further demonstrates that the Commitments are dated after the dates of settlement/funding for the mortgages they allegedly insure. (Compare R. at 650, 680, 703, with R. at 677, 701, 723). The Title Claims To UGT On or about January 8, 2010, DLJ made a title claim to UGT as a purported insured under ten (1 0) "title msurance policies, commitments/reports" allegedly issued by UGT, through its reputed agent, Clear View, and asked UGT to confirm its position with regard to UGT's prior denial of coverage related to three (3) commitments allegedly issued by UGT. (See R. at 726-28a).6 Those alleged Commitments, and the purported mortgage loans they relate to, form the basis of DLJ's claim against UGT in this action. (SeeR. at 449-504, 999-1 005). By letter dated January 11, 2010, UGT reaffirmed its position on its prior denial of coverage, acknowledged receipt of DLJ' s new claim, and asked for additional information from Plaintiff, including, without limitation, copies of the alleged policies issued by UGT, HUD-1 settlement statements for the transactions in issue, and loan origination files. (SeeR. at 6 The two prior denials were made on Aprill5, 2009 and June 1, 2009. (R. at 726-27). 13 729-30). Thereafter, UGT was supplied with, inter alia, copies of alleged HUD-1 settlement statements, and unmarked title commitments, but no policies of title insurance were ever produced to UGT by DLJ. (SeeR. at 731-32). After reviewing the documents provided to it, UGT denied coverage by letter dated January 20, 2010, on grounds that there was no record (or proof) of a premium being paid, DLJ had not produced a copy of its policies, while reserving its right to assert other defenses at a later date. (SeeR. at 735). DLJ did not bring a claim for improper denial of coverage, but instead joined UGT as a defendant in the underlying action. (See generally, R. at 498-504, 999-1 005). The Cause Of Action Asserted Against UGT The eleventh cause of action in the Amended Complaint seeks to hold UGT accountable for Clear View's alleged issuance of the thirteen (13) Commitments which relate to the Subject Mortgages. (See R. at~~ 498-504, 999-1 005). 7 DLJ generally avers that it "relied upon the representations of Clear View" when it acquired the Subject Loans, although DLJ fails to specifically plead what representations were allegedly made to it by Clear 7In the third amended complaint DLJ's claim against UGT is denominated as a twelfth cause of action. (R. 999-1 005). 14 View. (SeeR. at 499, 1000). DLJ further claims, in conclusory fashion, that it relied upon the purported Commitments for title insurance in deciding to purchase the Subject Mortgages, and claims that it "would not have purchased" the Subject Mortgages "without the UGT commitments for title insurance" which were allegedly "fraudulently prepared" by Clear View, (see R. at 500, 1001 ), and which were allegedly included in the collateral files delivered to DLJ by Coastal Capital. (SeeR. at 450, 500, 941-42, 1001). The Order Appealed From In lieu of answering the Amended Complaint, UGT moved to dismiss, pursuant to CPLR §§ 3016(b), 321l(a)(l), and 3211(a)(7), asserting that even if DLJ's allegations are accepted as true, DLJ's claim against UGT must fail. (See generally, R. at 637-735). Similar motions were made by two other defendant title insurance companies. (R. at 521-735). At oral argument the lower court denied UGT's motion, without written opinion. (SeeR. at 12-71). UGT appeals from that part of the lower court's Order which denied UGT's motion to dismiss the Amended Complaint. (R. at 9- 71). 15 ARGUMENT STANDARD OF REVIEW A cause of action must be dismissed pursuant to CPLR 3211(a)(7) where it fails to allege facts sufficient to support the claim asserted. See Urban Holding Corp v. Haberman, 162 A.D.2d 230, 230 (1st Dept. 1990) ("Under CPLR 32ll(a)(7), a motion to dismiss is properly granted if the pleading fails to state a cause of action."). See also, Loudin v. Mohawk Airlines, Inc., 24 A.D.2d 447, 447 (1st Dept. 1965). Similarly, a cause of action may be dismissed pursuant to CPLR 3211(a)(l) where, as here, the documentary evidence does not support the claims asserted. See Biondi v. Beekman Hill House Apt. Corp. 257 A.D.2d 76, 81 (1st Dept. 1999), aff'd, 94 N.Y.2d 659 (2000). On a motion to dismiss under 32ll(a)(l) or (a)(7), the Court generally accepts the factual allegations in the complaint as true, "nevertheless, allegations consisting of bare legal conclusions, as well as factual claims either inherently incredible or flatly contradicted by documentary evidence, are not entitled to such consideration." See also, Kliebert v. KcKoan, 228 A.D.2d 232, 232 (1st Dept. 1996) (emphasis added). See also, Biondi, 257 A.D.2d at 81. 16 Based upon DLJ' s allegations, the documents referenced in the Amended Complaint, and the law, the lower court erred in denying UGT's motion to dismiss the Amended Complaint, pursuant to CPLR 321l(a) and CPLR 3016(b). Accordingly, the Order of the lower court should be reversed on appeal, and the Amended Complaint should be dismissed with prejudice against UGT. POINT I THE AMENDED COMPLAINT FAILS TO ESTABLISH A BASIS FOR CONSPIRACY LIABILITY AGAINST UGT DLJ seeks to hold UGT accountable for the alleged criminal conspiracy of Kontogiannis and the Conspiracy Defendant to sell 95 fake mortgages to DLJ. (R. at 462, 954). DLJ however, has failed to plead any facts to hold UGT liable for the alleged conspiracy to defraud DLJ. While the lower court recognized that DLJ' s conspiracy allegations are "thread bare" with regard to the title insurance companies, and that DLJ has "not alleged that there is anything that [UGT] did to facilitate the [alleged] fraud", the lower court nevertheless sustained DLJ' s conspiracy based claim against UGT and the other title insurers. (R. at 39-40). This constitutes reversible error by the lower court. 17 To plead a conspiracy a plaintiff '"must demonstrate the [elements of a] primary tort, plus the following four elements: (1) an agreement between two or more parties; (2) an overt act in furtherance of the agreement; (3) the parties' intentional participation in the furtherance of a plan or purpose; and ( 4) resulting damage or injury."' See, Abacus Federal Savings Bank v. Lim, 75 A.D.3d 472, 474 (1st Dept. 2010) (citing World Wrestling Federation Entertainment v. Bozell, 142 F.Supp.2d 514, 532 (S.D.N.Y.2001)). See also, Chrysler Capital Corp. v. Century Power Corp., 778 F.Supp. 1260, 1267 (S.D.N.Y.l991). The Amended Complaint fails to plead a viable claim to hold UGT accountable for the alleged conspiracy to defraud DLJ for several reasons. First, the Amended Complaint fails to allege that UGT entered into an agreement with any of the "Conspiracy Defendants" to cooperate or be a part of the alleged fraudulent scheme against DLJ. In fact, UGT is not even defined as one of the Conspiracy Defendants in the Amended Complaint. (See R. at 369-436, 439-40, 843-928, 931-32). Since the Amended Complaint fails to plead facts from which it can be inferred that UGT agreed to be a participant in the alleged conspiracy, the lower court erred in denying UGT's motion to dismiss. See, e.g., Abrahami v. UPC Constr. Co., 18 176 A.D.2d 180, 180 (1st Dept. 1991) (claims for fraud and conspiracy to commit fraud failed because "there were no factual allegations of fact ... from which it could be inferred that [the defendants] had agreed or entered into an understanding with the other defendant . . . to cooperate in any fraudulent scheme."). See also, Devlin v. 645 First Ave. Manhattan Co., 229 A.D.2d 343, 344 (1st Dept. 1996); First Nationwide Bank v. 965 Amsterdam, Inc., 212 A.D.2d 469, 472 (1st Dept. 1995). Second, DLJ's Amended Complaint is facially deficient because it fails to allege any "overt acts" by UGT in furtherance of the alleged conspiracy. See, e.g., Carris v. White, 29 A.D.2d 470, 473 (4th Dept. 1968) ("An overt act must be pleaded.") (dismissing a claim for conspiracy to commit fraud). Cj, Davidowitz v. Dixie Associates, 59 A.D.2d 659, 660 (1st Dept. 1977) (sustaining a conspiracy claim, holding that plaintiff had pleaded overt acts by the defendant with specificity). See generally, 20 N.Y. Jur. 2d Conspiracy-Civil Aspects § 19 (the complaint must plead a "tortious or criminal act or acts committed in furtherance of the common agreement and purpose .... "). This unmistakable pleading defect was recognized by the lower court at oral argument, (R. at 40), which noted that the Amended Complaint does not allege that UGT did anything to facilitate 19 the alleged fraud. See id, yet the lower court sustained the claim. This was clearly in error. Absent factual allegations that UGT actually committed acts in furtherance of the fraud, DLJ' s conspiracy based claim against UGT was legally insufficient and should have been dismissed. See, e.g., Carris, 29 A.D.2d at 473. Third, and critically, DLJ has failed to allege that UGT had knowledge of the alleged conspiracy, which too is fatal to DLJ's conspiracy based claims. It is hornbook law that "a person without knowledge of the alleged objective cannot be considered a conspirator." 20 N.Y. Jur. 2d, Conspiracy- Civil Aspects § 10. Where, as here, a complaint fails to allege that the defendant was a knowing participant in the alleged conspiracy, the pleading is facially deficient and must be dismissed. See Supreme Specialty Mfg. Co. v. DeMuth, 220 A.D. 812, 812 (1st Dept. 1927) (cause of action for conspiracy dismissed where it failed to alleged that the defendants had knowledge of co-defendant's improper conduct); Pfenning v. Motto, 220 N.Y.S.2d 64, 66 (Sup. Ct. Suffolk County 1961) (dismissing conspiracy claim where plaintiff failed to plead defendant's knowledge of and intent to participate in an alleged conspiracy). 20 Finally, it is fundamental that a civil conspiracy claim must be based upon a viable intentional tort claim, because New York law does not recognize a substantive tort of conspiracy. Routsis v. Swanson, 26 A.D.2d 67, 71 (1st Dept. 1966). Absent a viable claim of fraud against a defendant, a claim for conspiracy to commit fraud lacks foundation and should be dismissed. See Yuko Ito v. Suzuki, 57 A.D.3d 205, 207 (1st Dept. 2008) (dismissing a conspiracy claim where the underlying fraud claim is dismissed) (citing Jebran v. LaSalle Bus. Credit, LLC, 33 A.D.3d 424, 425 (1st Dept. 2006)). As set discussed below, see Point III, infra, DLJ's fraud based claim should be dismissed under CPLR 3211(a) and/or CPLR § 30 16(b ). Absent an actionable tort claim against UGT, DLJ cannot maintain its conspiracy claim against UGT. Accordingly, and for the foregoing reasons, the lower Court erred denying UGT's motion to dismiss the Amended Complaint against UGT. The Amended Complaint fails to state a viable conspiracy claim against UGT, and UGT cannot be held accountable for the purported actions of the Conspiracy Defendants. 21 POINT II UGT IS NOT LIABLE FOR THE PURPORTED ACTS OF CLEAR VIEW, WHICH WERE NOT COMMITTED IN CLEAR VIEW'S CAPACITY AS A LIMITED AGENT FOR UGT DLJ's Amended Complaint seeks to hold UGT accountable under agency principals. (See R. at 18, 498-504, 999-1 005). However, Clear View's alleged "active participation" in a criminal conspiracy to sell :fraudulent mortgages to DLJ on the secondary market was not and could not have been within the scope of its actual or apparent authority as UGT' s limited agent. The lower court erred in denying UGT's motion to dismiss the Amended Complaint. A. Assuming That Clear View Committed The Acts Complained Of In The Amended Complaint, Clear View Was Not Acting With The Scope Of Its Actual Authority Clear View is alleged to be the limited agent of UGT. (See R. at 433, 439-40, 498-504, 743-50, 917, 931,999-1005). Clear View's authority was limited solely to the issuance of commitments for title insurance, and the countersigning and issuance of policies of title insurance in the State of New York in accordance with all applicable rules, laws, and regulations, and in connection with legitimate real estate transactions. (See R. at 743). The issuing agreement obligated Clear View to act in a "prudent and ethical 22 manner and in accordance with recognized underwriting principals and the rules, regulations and procedures" of UGT. !d. Furthermore, Clear View was not empowered to issue commitments or other products where it had knowledge of defects or adverse claims, absent prior approval. (See R. at 744). DLJ claims that UGT is liable under general agency principals for the alleged fraudulent conspiracy between Clear View, Kontogiannis and others to generate fake mortgages and to sell them to DLJ on the secondary market. See R. at 18. DLJ is wrong, and it is clear from the allegations of the Amended Complaint that Clear View was not acting within the scope of its limited authority. Indeed, the Amended Complaint alleges that Clear View "actively and knowingly conspired to and, in fact, did, commit the massive mortgage fraud (alleged herein upon DLJ." (R. at 499, 1000). Furthermore, the Amended Complaint alleges, without equivocation, that Clear View "did none of the[] things" it was obligated to do under the terms of its limited agency agreement with UGT. See id. There can be no legitimate claim that Clear View's active participation in a scheme to sell fraudulent mortgages to DL was conduct that was foreseeable to UGT, let alone conduct committed within the scope of the limited agency agreement (it was not). 23 Likewise, Clear View's alleged actions cannot be considered natural incidents of Clear View's limited agency with UGT, as DLJ concedes that Clear View did non of thee things it was obligated to do as a limited agent. (SeeR. at 499, 1 000). It is well-settled that a principal may not be held liable for the tortious misconduct of their agent where the agent acts outside of the scope of their authority. See McGarry v. Miller, 158 A.D.2d 327, 328 (1st Dept. 1990). See also, Center v. Hampton Affiliates, Inc., 66 N.Y.2d 782, 784 (1985) ("when an agent is engaged in a scheme to defraud its principal, either for his benefit or that of a third person, the presumption that knowledge held by the agent was disclosed to the principal fails because he cannot be presumed to have disclosed that which would expose and defeat his fraudulent purpose."). As stated by this Court in the case of McGarry v. Miller: [A] principal is only liable for the conduct of an agent acting within the scope of his authority. In that regard, making fraudulent misrepresentations was not reasonably or necessarily incidental to that which [the agent] was authorized to do ... Further, a principal is not liable for the acts of an agent in excess of any actual authority unless it is demonstrated that the party reasonably relied on such misrepresentations because of some misleading conduct on the part of the principal. Since neither Mutual Benefit nor M&M had any contact with plaintiff, no such showing can be made. 158 A.D.2d at 328 (internal citations omitted). 24 Where, as here, an agent abandons the scope of its agency, committing fraud for his own benefit of the benefit of others, no resort may be had against the principal. Credit Alliance Corporation v. Sheridan Theater Co., 241 N.Y. 216, 219 (1925) ("When an agent abandons the object of his agency and acts for himself, by committing a fraud for his own exclusive benefit, he ceases to act within the scope of his employment and, to that extent, ceases to act as agent."). See also, Otsego Mut. Fire Ins. Co. v. Darby, 79 Misc.2d 80, 85 (Sup. Ct. Fulton County 197 4) ("an agent's knowledge is not imputed to his principal when the agent is defrauding or otherwise acting against the interest of his principal for the benefit of another."). See generally, 2A N.Y. Jur. 2d Agency§ 307 ("When an agent abandons the object of an agency and acts for him - or herself by committing a fraud for the agent's own exclusive benefit, the agent ceases to act within the scope of employment and, to that extent, ceases to act as agent."). DLJ's Amended Complaint alleges that Clear View issued the fraudulent Commitments for title insurance at Kontogiannis' instruction (rather than UGT's), (See R. at 442, 933-34), solely for the benefit of Kontogiannis and Coastal Capital and in furtherance of their scheme to sell 25 fraudulent mortgages on the secondary market for a profit. (SeeR. at 444, 935-36). Clearly, none of the fraud alleged in the Amended Complaint was committed for the benefit of UGT, and no such benefit is alleged. Such a claim would be inherently incredible as DLJ concedes that no premiums were paid to UGT for title insurance, (R. at 21 ), or even collected. Moreover, the plain terms of the limited agency agreement are devoid of any provision which would remotely authorize Clear View to make fraudulent misrepresentations to DLJ on UGT's behalf. (R. at 743-49). Clear View's purported actions were neither reasonably foreseeable, nor a necessary incident of its limited authority to act on UGT's behalf, and UGT is not accountable for the same. McGarry, 158 A.D.2d at 328. If DLJ' s allegations are taken as true, then it is clear that Clear View abandoned the object of its agency to UGT. Indeed, DLJ pleads that the purpose of the scheme was to benefit of Kontogiannis, and entities controlled by him, and their alleged co-conspirators, (R. at 444, 447,935-36, 939), and to "ensure that the Kontogiannis Enterprise" and "Coastal Capital" would "make a profit" from the sale of the fraudulent loan. (R. at 444, 935-36). By acting in the manner alleged, Clear View was acting solely for the benefit of Kontogiannis and entities controlled by him, and its 26 alleged co-conspirators, and not for the benefit of UGT .. Based upon the facts plead by DLJ it is apparent that Clear View was not acting as the agent for UGT in allegedly committing the acts complained of. UGT cannot is not accountable for the purported fraudulent acts of Clear View, which were clearly outside the scope of its limited authority. Therefore, the lower court erred in denying UGT' s motion to dismiss the Amended Complaint as against UGT. B. The Amended Complaint Fails To Plead A Basis For Holding UGT Accountable Under A Theory Of Apparent Authority Undoubtedly, DLJ will argue, as it did below, that UGT is bound by the acts of Clear View which were committed under the guise of its "apparent authority" to act on behalf of UGT; however, any such argument is fundamentally flawed, and simply without merit. "Essential to the creation of apparent authority are words or conduct of the principal, communicated to a third party, that give rise to the appearance and belief that the agent possesses authority to enter into a transaction." Hallock v. State of New York, 64 N.Y.2d 224, 231 (1984). To invoke the doctrine of apparent authority a plaintiff must establish that it justifiably relied upon some false or misleading representation by the principal to the party claiming apparent authority. See McGarry, 158 27 A.D.2d at 328. See also, N. X v. Cabrini Medical Center, 280 A.D.2d 34 (1st Dept. 200 1) ("Invocation of the doctrine requires that the party asserting the agency have justifiably relied on the representations of the principal."). This is so because an agent cannot imbue himself with apparent authority by their own acts or conduct. See 150 Beach 12dh Street, Inc., 39 A.D.3d 723, 723 (2d Dept. 2007); Morgold, Inc. v. ACA Galleries, Inc., 283 A.D.2d 407, 408 (2d Dept. 2001). The Amended Complaint fails to allege or identify any false or misleading communications by UGT to DLJ which would (DLJ) the impression that Clear View was authorized to act on behalf of UGT. The reason for this is manifest; DLJ had no dealings with UGT, but instead, dealt solely with Coastal Capital and its own agents (Ocwen and BOA). (See R. at 450-51 ). Since DLJ admittedly had no communications or contact with UGT, it cannot resort to a claim of apparent authority. McGarry, 158 A.D.2d at 328 (holding that the plaintiff could not make necessary showing for a claim of apparent authority where it had no contact with the principal). Accordingly, the Amended Complaint is deficient, and the lower court erred in denying UGT's motion to dismiss. 28 Furthermore, where, as here, an agent completely abandons the object of his agency, and acts entirely for himself or another, he ceases to be an agent, and the principal is not liable under a theory of apparent authority. See, e.g., Adler v. Helman, 169 A.D.2d 925, 926 (3d Dept. 1991) ("When an agent abandons the object of his agency and acts for himself, by committing a fraud for his own exclusive benefit, he ceases to act within the scope of his employment and, to that extent, ceases to act as agent.") (Rejecting a claim that a title issuing agent's fraud should be imputed to a title underwriter, and further holding the title insurance underwriter was not liable to the plaintiff under a theory of apparent authority). As noted above, and under the facts alleged, Clear View was not acting as an agent of UGT when it allegedly committed the acts complained of in the Amended Complaint. To the contrary, its fraud was committed exclusively for the benefit of Kontogiannis and his cohorts, and not for the benefit of UGT. The lower court erred in denying UGT' s motion to dismiss the Amended Complaint. 29 C. UGT Is Not Accountable For The Acts Of Clear View And/Or Triumph In Their Purported Capacity As Limited Agents For Other Parties Finally, it must be noted that the Amended Complaint seeks to hold UGT accountable for the purported fraud of Clear View and Triumph Abstract, Inc. ("Triumph"), which is not even alleged to be an agent of UGT, in connection with their issuance of approximately 82 false commitments of title insurance and/or policies of title insurance which were allegedly issued on behalf of defendant Washington Title Insurance Company ("Washington Title"), and Chicago Title. Without opining as to the merits of any claims against Washington Title and/or Chicago Title (which would appear to be without merit), the Amended Complaint should have been dismissed to the extent that DLJ seeks to hold UGT accountable for the alleged acts of Clear View and/or Triumph undertaken in their respective capacities as purported issuing agents for the other title insurance companies. See Harriss v. Tams, 258 N.Y. 229, 236 (1932) ("No obligation can be imposed upon [a] principal by the act of an agent outside of his real or apparent authority") Assuming, arguendo, that Clear View was an agent of Chicago Title and/or Washington Title, and that it (Clear View) issued fraudulent 30 commitments/policies of title insurance bearing the name of Washington Title and/or Chicago Title, it does not follow that Clear View committed those acts as actual or even ostensible agent of UGT. Rather, Clear View was purporting to act on behalf of other parties, not UGT. As a matter of law, UGT cannot be held accountable for Clear View's acts committed in its capacity as purported agent of third parties. 8 The same is equally true for Triumph, an entity which is not even alleged to be UGT' s limited agent; rather, Triumph is alleged to be the agent of Washington Title only. (SeeR. at 434-435). As a matter of law, UGT cannot be held liable for the purported acts of Triumph if it is not even alleged to be an agent for UGT. Dismissal of the Amended Complaint is in order to the extent it seeks to hold UGT accountable for the acts of Triumph and/or Clear View committed in their purported capacity of agents for Washington Title and/or Chicago Title. 8 Similarly, to the extent that DLJ claims that Doumazious perpetrated a fraud on DLJ, UGT cannot be held accountable for the same under agency principals. Whatever fraud was perpetrated by Doumazious individually cannot be attributable to UGT. See Eng v. Sichenzi, No. 818/2001, 2005 WL 6227846, at *5 (Sup. Ct. Putnam County Dec. 6, 2005) ("Catherine N. Coughlin was not Old Republic's agent. Whatever fraudulent act she individually committed is not attributable to Old Republic."). 31 POINT III THE LOWER COURT ERRED IN HOLDING THAT THE AMENDED COMPLAINT STATES A VIABLE CLAIM OF FRAUD AGAINST UGT In support of its fraud based claim against UGT DLJ was obligated to allege, inter alia: (1) misrepresentation of a material fact; (2) the falsity of that misrepresentation; (3) scienter, or intent to defraud; ( 4) reasonable reliance on that representation; and ( 5) damage caused by such reliance. See Waggoner v. Caruso, 68 A.D.3d 1, 6 (1st Dept. 2009). See also, Peach Parking Corp. v. 346 W, 40th St., LLC, 42 A.D.3d 82, 86 (1st Dept. 2007). CPLR 30 16(b) requires that DLJ allege the acts of fraud or misrepresentation in detail so as to clearly inform the defendant with respect to the incident complained of and to give notice of the allegations that DLJ intends to prove. Fort Ann Cent. School Dist. v. Hogan, 206 A.D.2d 723, 724 (3d Dept. 1994). Section 3016(b) imposes a more stringent standard of pleading than the generally-applicable notice of the transaction rule of CPLR 3013. Ramos v. Ramirez, 31 A.D.3d 294, 294-95 (1st Dept. 2006); Megaris Furs, Inc. v. Gimbel Bros., Inc., 172 A.D.2d 209, 209-10 (1st Dept. 1991). The purpose of the rule is to "deter unfounded claims." See 32 Sergeants Benev. Ass 'n Annuity Fund v. Renck, 19 A.D.3d 107, 114 (1st Dept. 2005) (Tom, J.) (dissenting). Pursuant to CPLR 3016(b) a plaintiff is required allege: (i) the substance of the fraudulent statements that were made; (ii) the identity of the speaker(s); and (iii) when and where the statements were made. Eastman Kodak Co. v. Roopak Enterprises, Ltd., 202 A.D.2d 220, 221 (1st Dept. 1994) (plaintiff failed to allege the time or the place of the purported misrepresentations, or the identity of the individuals who purportedly made them). See New York Fruit Auction Corp., 81 A.D.2d 159, 161 (1st Dept. 1981), aff'd 56 N.Y.2d 1015 (1982) (complaint deemed facially deficient where the plaintiff failed to identify the individuals who "purportedly misrepresented the facts and/or made a mistake in presenting the true facts," and where there were "no factual details ... pleaded as to the time and place of the[] encounters with the [defendants]."). DLJ' s Complaint fails to plead with particularity the essential elements of a fraud claim against UGT. Therefore, the lower court erred in denying UGT's motion to dismiss the Amended Complaint. 33 A. DLJ Fails To Plead With Particularity Any Fraudulent Statements/Omissions By Clear View To DLJ The Amended Complaint alleges that DLJ acquired the Subject Mortgages from Coastal Capital on the secondary market. (SeeR. at 365, 83 8). DLJ does not allege that it had any communications with Clear View concerning the alleged commitments for title insurance (or for that matter, anything), or that Clear View interacted with DLJ in and manner. (R. at 450-51, 941-42). Instead, it is alleged that the only parties with whom DLJ communicated were Coastal Capital and/or its employees/representatives, as well as its own due diligence agents (Ocwen and BOA). (See R. at 450-51; 941-42). Since DLJ acquired the Subject Mortgages on the secondary market it is conceded that DLJ was not present at the closing of any of the alleged loans that were acquired by Coastal Capital, and that DLJ was not privy to any purported communications from Clear View concerning the existence (or non-existence) of title insurance or the Subject Mortgages. By DLJ' s own allegations, if any representations were made to DLJ about the Subject Mortgages they were not made by Clear View or UGT, but by Coastal Capital (or it employees), Ocwen, and/or BOA, who are not alleged to be UGT's agents. For this reason alone DLJ's fraud based claim against UGT must be dismissed. 34 In addition, while DLJ makes the self-serving and conclusory claim that Clear View made "representations", (R. at 499, 1000), DLJ fails to identify with any degree of specificity what representations, if any, were allegedly made to DLJ by Clear View. The reason for this is manifest- DLJ had absolutely no communications with Clear View, but instead, communicated with Coastal Capital only. (R. at 450-51, 941-42). Rather than identifying specific representations and/or omissions by Clear View, DLJ makes generalized and unspecific claim that the "Conspiracy Defendants" made misrepresentations that: • The Subject Mortgages were "enforceable and perfected" liens. • The Subject Mortgages "were legal, valid and binding obligations of the makers" • All information concerning the mortgagors was "true, accurate and complete and [did] not contain any statement that is or will be inaccurate or misleading .... " (R. at 459, 950).9 9 In addition, DLJ asserts, in general fashion, that the "Conspiracy Defendants" failed to disclose that: • The Subject Mortgages had not been recorded, compromising DLJ's purported interest; and • The loan proceeds had been funneled or secreted by the Conspiracy Defendants. (R. at 460, 950). 35 Such generalized and conclusory allegations are wholly insufficient under CPLR 3016(b) because the Amended Complaint fails to identify: (i) any specific fraudulent statements (or omissions) that were made to DLJ by Clear View, if any; (ii) the identity of the speaker( s) who made the statements to DLJ, if any; and (iii) when and where the statements were made. See Eastman Kodak Co., 202 A.D.2d at 221; New York Fruit Auction Corp., 81 A.D.2d at 161. DLJ's failure to meet the rigorous requirements of CPLR 3016(b) requires dismissal ofDLJ's fraud claim against UGT. Even if the Court assumes that such misrepresentations were made to DLJ by Clear View, although it need not as the Amended Complaint is devoid of allegations to that effect, such representations concern the truth of the documents in a purported loan file and the enforceability of the debt of the Subject Mortgages, which UGT is not in the business of insuring. As a matter of law, a loan policy of title insurance company does not insure that a mortgage is valid and enforceable according to its terms10, that information contained in a collateral file is true and correct, or that a mortgage is binding 10 According to DLJ's own allegations and admissions, the Subject Mortgages are invalid and unenforceable as the mortgagee (i.e., Coastal Capital) never paid funds to their purported mortgagors, but instead were allegedly paid to Kontogiannis and his co- conspirators, (R. at 448-49, 939-40). 36 on its maker. Likewise, it does not insure the proper disbursement of loan proceeds. Rather, a loan policy of title insurance merely insures against defects in title to land collateralizing the insured mortgage loan. See generally 3A Warren's Weed New York Real Property Mortgages§ 12.03[5] (4th Ed.1990). Stated differently, mortgage title insurance merely "insures against [a] loss regarding title to the land, not the underlying debt." See Fidelity Nat. Title Ins. Co. of New York v. Consumer Home Mortg., Inc., 272 A.D.2d 512, 514 (2d Dept. 2000). And because the purported instruments never intended to secure a debt. . (R. at 448, 939-40). The generalized misrepresentations indentified by DLJ in its pleadings,were not reasonably or necessarily incidental to Clear View's limited agency with UGT, , assuming they were made by Clear View, and would be beyond the scope of its authority to make such representations. By reason of the foregoing, even if DLJ' s conclusory allegations are believed to be true, and it is assumed that Clear View made misrepresentations and/or omissions (although, the DLJ fails to plead the same), such representations were not undertaken by Clear View on UGT's behalf, nor were they an incident or extension of its limited authority to act 37 as an issuing agent for purposes of issuing legitimate policies of title insurance. UGT is not accountable for the same. B. DLJ Was Not Entitled To Rely On The Alleged Commitments For Tile Insurance An essential element of a fraud based claim is reasonable reliance. Valassis Commun., Inc. v. Weimer, 304 A.D.2d 448, 449 (1st Dept. 2003) (reasonable reliance is "essential to a claim for fraud."). Where a plaintiff is unable to establish their reliance was reasonable under the circumstances, as is the case herein, dismissal is appropriate under CPLR 3211(a). See, e.g., Valassis Commun., Inc., 304 A.D.2d at 449 (granting motion to dismiss under CPLR 3211(a)). See also, Leonard v. Gateway II, LLC, 68 A.D.3d 408, 409 (1st Dept. 2009) (the plaintiff"cannot claim reasonable reliance on provisions in the Offering Plan that she never saw and apparently never asked to see.") (affirming dismissal of a fraud claim). The gravamen of DLJ fraud claim against UGT is that it allegedly relied on the Commitments in making a decision to purchase the Subject Mortgages from Coastal Capital, and that it would not have purchased them but for the fact that the collateral files for the Subject Mortgages contained the unmarked Commitments. (See R. at 500, 1001). Even if the Court accepts DLJ' s conclusory allegations as true, DLJ' s purported reliance upon 38 the alleged Commitments in making its determination to acquire the Subject Mortgages was, and is, entirely improper and misplaced, and should not result in any liability. DLJ's fraud based claim should have been dismissed. There can be no question that a commitment of title insurance is not evidence of title insurance coverage. See Mandor v. Lawyers Title Ins. Corp., 28 N.Y.2d 739, 741 (1971) ("The report on title did not, on its face, evidence coverage .... "). A commitment for title insurance is merely a pre- closing document that may be given to an applicant for title insurance in advance of closing so they know what defects are being identified by the insurer so that those defects can be cleared, and exceptions removed. See Joyce D. Palomar, Title Insurance Law § 5:29 (West 2005) ("The title insurer generally gives the commitment to the title insurance applicant a few weeks before the date scheduled for the closing of the real estate transaction. The opportunity to examine the commitment before closing makes the title insurance applicant aware of those title defects that the insurer has listed as special exceptions. The applicant then may work with the transformer and title insurance company to clear defects from the title, and remove exceptions from the coverage of the final policy."). 39 The purpose of the commitment for title insurance is to articulate the grounds on which a title insurer will be willing to issue a title insurance policy, and subject to the satisfaction of certain conditions. See generally, Joyce D. Palomar, Title Insurance Law, § 5:29 (West 2005) ("A title insurance commitment sets forth the terms that the title insurer is offering to include in any title insurance policy it will issue, including all special exceptions, preprinted exclusions, and conditions to coverage."). See also, Pedowitz, Real Estate Titles, § 2.51 (West 3d ed.) ("The purpose of a certificate of title is to indicate "the basis on which a . . . mortgagee can proceed or upon which a title insurer would be willing to insure the title."). A commitment for title insurance enables an underwriter "to discover known title defects with the view of having them corrected before the policy [goes] into effect or excluding them from the scope of its coverage." See Citibank, N.A. v. Chicago Title Insurance Company, 214 A.D.2d 212, 217 (1st Dept. 1995). Accordingly, commitments for title insurance, such as the ones allegedly issued by Clear View and relied upon by DLJ, are issued solely for the benefit of a title insurance underwriter, and not for the benefit of a proposed insured. See id. (commitment for title insurance is made for 40 the underwriter's "benefit-to exclude the risks is would not cover-not for the benefit of [the lender]."). While DLJ claims that it relied on the Commitments in deciding to purchase the Subject Mortgages (which is not conceded), DLJ's purported reliance was in error and improper as a matter of law. See Zev Cohen, LLC v. Fidelity National Title Insurance Co., 15 Misc.3d 798, 805 (Sup. Ct. Kings Cty. 2007) ("To the extent that plaintiff claims it relied on the title report and would not have purchased the property if the title report had revealed the existence of [an encumbrance], its reliance, as a matter of law, is misplaced"). The case of Citibank, N.A. v. Chicago Title Insurance Company, 214 A.D.2d 212, is instructive. In Citibank, N.A., this Court reversed a judgment entered in favor of Citibank, holding that Chicago Title was not liable for Citibank' s alleged reliance upon alleged misstatements contained in a commitment of title insurance. In pertinent part, the Court held that: Chicago Title issued only its "Commitment for Insurance" ... which listed the title defects primarily it was excepting from coverage. That search was made for its benefit-to exclude the risks is would not cover-not for the benefit of Citibank. (Matter of City Title Ins. Co. v. Superintendent of Ins. of State of NY, 31 Misc.2d 1012, 1013, 227 N.Y.S.2d 99, affd. 16 A.D.2d 768, 228 N.Y.S.2d 461, affd. 13 N.Y.2d 686, 241 N.Y.S.2d 171, 191 N.E.2d 673.) We recognize, of course, that 41 lenders and buyers alike customarily rely on a title insurer's title search, which enables them to decide whether to cure the defect and conclude the transaction or proceed no further. (See, Ticor Title Insurance Company v. FTC, 922 F.2d 1122 [3d Cir.1991], revd. and remanded on other grds. 504 U.S. 621, 112 S.Ct. 2169, 119 L.Ed.2d 410.) That circumstance, however, does not, absent some other commitment from the insurer, render the search an independent representation as to title, which . . . gives rise to a cause of action in negligence or misrepresentation. 214 A.D.2d at 217. Even if Clear View generated the thirteen (13) Commitments relating to the Subject Mortgages (which is not conceded), and that the same were transmitted to DLJ by Coastal Capital as part of the collateral file for the "bogus" paper that DLJ purchased, as has been alleged, DLJ had no right to rely upon the unmarked Commitments, as a mater of law. See Zev Cohen, LLC, 15 Misc.3d at 805. Furthermore, DLJ is not entitled to bring a claim for fraud based upon any alleged misrepresentations in the Commitments, which DLJ is clearly attempting to do. See Citibank, N.A., 214 A.D.2d at 21 7. The lower court committed reversible error in denying UGT' s motion to dismiss the Amended Complaint. 42 C. The Commitments Refute Any Claim By DLJ That It Reasonably Relied Upon The Commitments DLJ' s purported reliance on the Commitments was clearly unwarranted based upon the plain language of the Commitments. It is undisputed that the collateral files for the Subject Mortgages only contained unmarked commitments for title insurance. The Commitments indicate on their face that they are not intended to be relied upon by a proposed insured, but instead are only intended for use by attorneys. (SeeR. at 650, 680, 703). The Commitments provide, in pertinent part: The use of this Commitment is intended for attorneys only. The exceptions as may be set forth herein may affect the marketability of title to the land set forth in Schedule A hereto. You should consult your attorney before taking any action based upon the contents hereof. [UGT's] representative at any closing held hereunder may not and will not act as legal adviser to any of the parties to the closing or draw legal instruments for such parties. Such representative is permitted to be of assistance only to an attorney. You are advised to have your own attorney present at any closing held hereunder. (SeeR. at 650, 680, 703). The language of the Commitments utterly refutes any claim by DLJ that its purported reliance was reasonable under the circumstances, which make clear that DLJ had no right to rely upon the Commitments. The lower court erred in denying UGT' s motion to dismiss. 43 D. DLJ Decision To Ignore Readily Apparent "Red Flags" Bars It From Seeking Recovery Against UGT As established above, DLJ's claimed reliance on the unmarked pre- closing Commitments was unreasonable, and unwarranted. Putting that aside for the moment, it is clear that DLJ cannot claim justifiable reliance given the fact the loan files it purchased from Coastal Capital contained "red flags" which were readily apparent, and which DLJ apparently chose to ignore when it proceeded with the acquisition of the Subject Mortgages despite the existence of those "red flags." DLJ's self-inflicted ignorance precludes DLJ from claiming reliance on any purported (but unsubstantiated) misrepresentations made by Clear View regarding the Subject Mortgages. First, none of the collateral files for the Subject Mortgages contained policies of title insurance, but instead only contained the unmarked Commitments for title insurance. As discussed above, a commitment for title insurance is not title insurance, and does not purport to be title insurance, and cannot be relied upon by a lender. See Point II (B) and (C), supra. The absence of actual loan policies of title insurance from the collateral files for the Subject Mortgages was certainly a "red flag" that 44 required DLJ (a sophisticated lender) to inquire into the bona fides of the paper it was acquiring from Coastal Capital. DLJ did nothing of the sort Furthermore, the Commitments were dated months after the date of the alleged settlement/closing for the Subject Mortgages as indicated on the HUD-1 Settlement Statements for the Subject Mortgages. (Compare R. at 650, 680, 703, with R. at 677, 701, 723). This makes no sense given the fact that a commitment for title insurance is a pre-closing document issued prior to the settlement of a loan. It is clear from the face of the documents in DLJ' s collateral file that the Commitments had substantive problems which required DLJ to inquire further into the transactions. DLJ cannot claim it was relying upon a pre-closing document that indicates, on its face, that the alleged commitment date post-dated the alleged closing date. DLJ was clearly on notice of this "irregularity" when it obtained the collateral files from Coastal Capital, yet DLJ (or its due diligence agent) chose to ignore this obvious red flag and to proceed with the purchase of the Subject Mortgages. Finally, it is clear from DLJ's pleading (and DLJ does not dispute) that it did nothing to confirm whether the Subject Mortgages were actually recorded prior to the time that it acquired the same from Coastal Capital. 45 Instead, it agreed to purchase the Subject Mortgages without any proof of recording. (SeeR. at 451, 942). DLJ could have performed a simple search on the publically available documents, which can be accessed on the ACRIS system, to determine whether or not the Subject Mortgages were recorded, which it failed to do. The fact that the Subject Mortgage were not recorded prior to DLJ's acquisition of demonstrates was yet another "red flag" which required DLJ to inquire further. That the subject Mortgages were not recorded prior to DLJ's acquisition of the same demonstrates that DLJ's reliance was unreasonable. The law is clear, "As a matter of law, a sophisticated plaintiff [such as DLJ] cannot establish it entered into an arm's length transaction in justifiable reliance on alleged misrepresentations if that plaintiff failed to make use of the means of verification that were available to it." UST Private Equity Investors, Inc. v. Salomon Smith Barney, 288 A.D.2d 87, 88 (1st Dept. 200 1) (affirming dismissal of a cause of action for fraud). See also, Stuart Silver Assoc., Inc. v. Baco Dev. Corp., 245 A.D.2d 96, 98-99 (1st Dept. 1997) ("Where a party has the means to discover the true nature of the transaction by the exercise of ordinary intelligence and fails to make 46 use of those means, he cannot claim justifiable reliance on [a] defendant's misrepresentation."). DLJ is a substantial and sophisticated player in the acquisition, pooling, and sale of mortgages on the secondary market, which purchased hundreds of millions of dollars in mortgages on the Secondary Market. As a sophisticated party DLJ clearly had the means available to it to confirm the existence, or non-existence, of title insurance for the Subject Mortgages, and certainly could have contacted UGT to determine if title insurance existed for the Subject Mortgages. However, neither DLJ, nor its due diligence agents (Ocwen and BOA), performed any meaningful review of the loan files, nor did the review the documents of record on ACRIS, but instead merely examined the purported facial sufficiency of the documents to determine whether they were "regular on their face." DLJ cannot now claim that its actions were reasonable in light of its due diligence failures. See UST Private Equity Investors, Inc., 288 A.D.2d at 88 Stuart Silver Assoc., Inc., 245 A.D.2d at 98-99. 47 CONCLUSION Based upon the foregoing it is respectfully submitted that the UGT has set forth a sufficient basis to reverse the Order of the lower Court. The Court below was incorrect in denying UGT's motion to dismiss the Amended Complaint. Accordingly, the Order of the lower Court should be reversed in its entirety, and the Amended Complaint should be dismissed against UGT with prejudice and the Court should award such other and further relief as it deems just and proper. Dated: White Plains, New York May 9, 2012 On the Brief Michael J. Schwarz, Esq. LeeS. Wiederkehr, Esq. Respectfully submitted, ~.:.q: Michael J. Schwarz, Esq. DelBello Donnellan Weingarten Wise & Wiederkehr, LLP Attorneys for Defendant-Appellant United General Title Insurance Company 1 North Lexington Avenue - 11th Floor White Plains, New York 10601 (914) 681-0200 48 CERTIFICATE OF COMPLIANCE Pursuant to 22 NYCRR §600.10(d)(l)(v) the foregoing Brief was prepared on a computer using Microsoft Word. Type: A proportionally spaced typeface was used, as follows: Name of typeface: Times New Roman Point size: 14 Line spacing: Double Margins: The margins are one (1) inch on all sides. Word Count: The total number of words in this Brief, inclusive of point headings and footnotes and exclusive of pages containing the table of contents, table of citations, proof of service, certificate of compliance, or any authorized addendum containing statutes, rules, regulations, etc., is 10,045. 49 (FILED: NEW YORK COUNTY CLERK 08/10/2011) NYSCEF DOC. NO. 503-2 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK ---------------- -------------x DLJ MORTGAGE CAPITAL, INC., Plaintiff, -against- TIIOMAS KONTOGIANNIS, GEORGIA KONTOGIANNIS, LISA DIPINTO a/k/a USA KONTOGIANNIS a/k/a LISA POLLATOS, ANNEITE APERGIS, CHLOE KONTOGIANNIS, ADAM DIPINTO, ELIAS APERGIS, JOHN T. MICHAEL, JONATHAN RUBIN, MICHAEL A. GALLAN, ESQ., 1ED DOUMAZIOS, ESQ., TIIOMAS F. CUSAK, Ill, ESQ. S1EPHEN P. BROWN, ESQ., STEPHEN A. MARTINI, CA.lUI.liNE CUOMO, COASTAL CAPITAL CORPORATION d/b/a TIIE MORTGAGE SHOP d/b/a CLEARLIGHT MORTGAGE, EDGEWATER DEVELOPMENT, INC., GROUP KAPPA CORP., LORING ESTATES LLC, PARKVIEW FINANCIAL C~ INC. d/b/a PARKVIEW FINANCIAL, INC. d/b/a PARKVIEW CENTE~ INC., CLEAR VIEW ABSTRACT INC., TRIUMPH ABSTRACT, LLC, BOND & WALSH CONSTRUTION COMPANY, INTERAMERICAN MORTGAGE CORP., HALIFAX GROUP LLC, PLAZA REAL ESTATE HOLDINGS INC., W ASIDNGTON 1ITLE INSURANCE COMPANY, INC., ClllCAGO 1TfLE INSURANCE COMPANY, INC., UNITED GENERAL TITLE INSURANCE COMPANY, INC., AND DOE'S 1 through 100, inclusive, Defendants. ------------------------------~x 1. The title of the action is as set forth above. INDEX NO. 104675/2010 RECEIVED NYSCEF: 08/10/2011 IndexNo.104675-2010 (Ramos, J.) PRE-ARGUMENT STATEMENT 2. The :full names of the original parties are set forth in the above caption, and there have been no changes in the parties to this action with the exception of the addition of Gregory Holland and George Holland as party defendants. 1341157 5000111211-2111 3. The attorneys for defendant-appellant are: DelBello Donnellan Weingarten Wise & Wiederkehr, LLP One North Lexington Avenue White Plains, New York 10601 (914) 681-0200 4. The attorneys for plaintiff-respondent are: John P. Amato, Esq. Hahn & Hessen, LLP 488 Madison Avenue New York, New York 10022 (212) 478-7200 5. This appeal is from an Order of the Supreme Court of the State of New York, County of New York, Part 53 (Ramos, J.S.C.), dated August 1, 2011, and transcript dated June 20, 2011 and so ordered on August 3, 2011 (the ''Order''). 6. The nature of the action stems from allegations by plaintiff-respondent (''DU'') of a mass mortgage fraud orchestrated by Thomas Kontogiannis and others. DLJ seeks to hold defendant-appellant United General Title Insmance Company, Inc. (''UOT'), a title insurance underwriter, liable for the allegedly fraudulent acts of Clear View Abstract, ric ("Clear View'') and its principal Ted Doumazios ("Doumazios''), which are purported to be UGrs limited agents. DU claims that Doumazios and Clear View participated in a massive criminal conspiracy masterminded by Kontogiannis and others to create phony mortgages that were later sold to DU. Now that the mortgages have been exposed as fraudulent, DU claims that UGT should be held responsible since Clear View and/or Doum.azios allegedly misrepresented that the mortgages were insmed by UGT title insurance policies, which they are not. 7. The Order appealed from, inter alia, denied UGT's motion to dismiss pursuant to CPLR 3211(a)(1), CPLR 3211(a) (7) and CPLR 3016(b). 8. The Order appealed from should be reversed on the grounds, inter alia, that the lAS Court misapplied applicable law. Specifically, the lAS Court failed to properly consider 1341157 !OOOlnD-261 .. UGT's arguments that: (i) DLJ failed to allege any detailed aspect of the claim fraud, including any statement fraudulent or otherwise, made by either UGT or its limited agent to DU; (ii) DLJ, a sophisticated plaintiff, cannot establish that it entered into an arm's length transaction in justifiable reliance on alleged misrepresentations since Plaintiff failed to make use of the means of verification that were available to it; (iii) DLJ cannot plead justifiable reliance on the alleged misrepresentation that the subject loans were insured by title insurance policies since the documents themselves indicated, on their face, that they were not title policies; (iv) UGT cannot be held liable for the fraud of its agent as the alleged fraudulent acts or statements made by Clear View, if any, were outside the scope of Clear View's agency with UGT; and (vi) DLJ failed to plead a basis for conspiracy liability against UGT. 9. There are no related actions pending. 10. An appeal from the above reference· Order was also taken by Defendant Chicago Title Insmance Company, Inc. ("Chicago Title"), by Notice of Appeal dated August 10, 2011, which remains unperfected as of the date of this Pre-Argument Statement A copy of the Notice . ' of Appeal and Pre-Argument statement filed by Chicago Title is annexed hereto as Exhibit 1. Dated: White Plains, New York August 10,2011 1341U7 5CJOOI~I DelBello Donnellan Weingarten Wise & ehr, LLP . tederkehr ~chaelJ.Schvvar.z One North Lexington Avenue White Plains, New York 10601 (914) 681-0200 Attorneys for Defendant-Appellant United General Title Insurance Company. Inc.